Odious Debts

Abuse of power

Mindy Belz
World Magazine
July 14, 2004

Like Hydra awakened from its swampy lair, Iraq’s much-lampooned Oil for Food program has emerged a monster with nine heads. That is, nine investigations, by current count, will lumber forward this summer into a UN program known more popularly postwar as Oil for Palaces, Oil for Influence, or, experts now fear, Oil for Terror.

The largest probe – the UN’s investigation of itself with independent credentials courtesy of former Fed chairman Paul Volcker – already is budgeted at $4 million and pledged to take at least a year. Other inquiries are underway in Congress, at federal agencies, before the courts, and with the new Iraqi government. An undisclosed number of subpoenas have gone out to oil giants with definite interests in the Middle East, like Chevron and Exxon, and to others with seemingly no connection to Saddam Hussein’s corrupt regime, like the Australian Wheat Board. Can so much scrutiny be healthy?

For longtime investigators like Claudia Rosett, former Wall Street Journal columnist and senior fellow at the Foundation for the Defense of Democracies, the answer is yes. “Given that UN Secretary-General Kofi Annan in wrapping up the UN’s role in Oil for Food last November was content simply to praise the program and close the books – with no investigation whatsoever – this is progress,” she told a House panel July 8.

The reasons for investigation are obvious. The U.S. General Accounting Office says Saddam made off with at least $10 billion in illegal bribes and fees under UN sponsorship. The newly liberated Iraqi press came up with a list of kickback recipients – 270 – including several with direct connections to heads of state and UN officials. And the UN only recently divulged what should long have been public domain: the name of the bank where the UN stored Iraq’s $65 billion in oil revenues over the eight-year history of Oil for Food (French-born BNP Paribas). Imagine all that interest, compounded daily, and it’s possible to see why so many sleuths are salivating.

So the fact-finders must deconstruct what is probably the largest humanitarian assistance program in the history of the world. Oil for Food collected $65 billion in revenues from the sale of Iraqi oil; the goal was to spend on essential goods and services. Its intent: to compensate the Iraqi people for across-the-board UN sanctions imposed after the Gulf War, sanctions that would have been lifted if Saddam had complied with terms of the peace agreement he signed.

The Marshall Plan, by contrast, provided $13 billion ($90 billion in 2004 dollars) for 17 devastated European countries. Oil for Food, in the end, dispensed $45 billion in “humanitarian assistance” to one country that was needy but not war-devastated. Individual health and well-being improved minimally if at all in areas under UN/Saddam control; civic infrastructure, at the same time, notably declined.

Yet so far, the rapid spawn of investigations is generating more heat than light. The first, launched by the now-defunct Iraqi Governing Council (IGC), fell victim to a preemptive strike from the former U.S. administrator in Iraq, Paul Bremer. Mr. Bremer and his deputies from the Coalition Provisional Authority (CPA) agreed to the probe in February – but just weeks after IGC contracted with well-known accounting firm KPMG to carry out an independent audit, Mr. Bremer abruptly changed course and refused to release funds to pay the firm. He approved a rival investigation under CPA auspices with Ernst & Young. Presumably that probe will continue under the new U.S. embassy in Baghdad – but not without a grudge on the part of Iraqi officials.

Other probes have started stateside. The Treasury Department and U.S. Customs Service are looking into whether U.S. citizens participated in Saddam’s kickback schemes or otherwise benefited in spite of U.S. sanctions on Iraq. The Justice Department, too, has begun legal proceedings, aided by the FBI. The U.S. attorney for the Southern District of New York has served subpoenas on an undisclosed number of international energy companies for information on their purchases of Iraqi oil. Chevron, Exxon, and Valero confirmed that they received subpoenas last month. Valero has acknowledged it was a major buyer of Iraqi oil but maintains that “all of Valero’s purchases were made through approved UN third parties,” spokeswoman Mary Rose Brown told reporters.

At least three separate inquiries are underway in Congress. House investigators will head to Iraq next month for another firsthand look at the scandalized program, according to House International Relations Committee spokesman Sam Stratman. He would not reveal the committee’s angle but said, “We are in the midst of seeking and analyzing documents.” It will be the third trip to Iraq for committee staff since chair Rep. Henry Hyde (R-Ill.) took on Oil for Food mismanagement last spring.

Into that crowded field, the UN is a relative latecomer. Secretary-General Kofi Annan appointed Mr. Volcker, the former Federal Reserve chairman, to head its investigation in April. Mr. Volcker, after receiving a broad mandate in the form of a Security Council resolution, will look at UN mismanagement of goods delivered to Iraq as well as potential UN bribe-taking on oil sold. While Mr. Annan has pledged complete cooperation from the UN bureaucracy, where Oil for Food operations spanned 10 separate UN agencies, a large portion of the UN’s 18,000 workers say they won’t be whistleblowers. A recent internal survey found 46 percent unwilling to speak up for fear of losing their jobs and their pensions.

So far anything but cooperation has been evident among competing probes. Mr. Volcker announced early on he would not release “confidential, contractual, or proprietary documentation” to other panels. Former Oil for Food director Benon Sevan went further, sending threatening letters to Oil for Food contractors who did speak to outside panels. One consultant who spoke to congressional investigators received a letter signed by Mr. Sevan, advising him to “not communicate at any time to any other person, government, or authority external to the United Nations any information known to them by reason of their association with the United Nations, which has not been made public.”

Congressional investigators hope to learn more in Baghdad than they’ve been able thus far to pull from either the United Nations or the U.S. State Department. Both House and Senate committees have subpoenaed documents from UN banker BNP Paribas and others with little result. So far, Sen. Hyde’s committee has been able to obtain only one of 55 audits conducted by a UN internal auditing agency. Committee staff members say the UN refuses to hand others over. Internal audits, it turns out, were delivered only to Mr. Sevan. No one on the 15-member Security Council oversight committee saw them.

Given the length of legal proceedings and the inherent flaws of a UN self-investigation, the place where most watchdogs look for traction is somewhere between congressional panels and Iraqi officials. Capitol Hill strategists hold a big stick – $350 million in UN funding (22 percent of budget) – and already are threatening to use it next year if UN principals don’t comply with congressional investigations.

When all is said and done in the halls of power, though, it is the Iraqis who have most at stake in Oil for Food scrutiny. Oil revenue belongs to Iraqis, after all, and UN authorities should have functioned as their trustee. Under Saddam, Kurdish regions in the north and Shiite areas of the south were denied billions in aid allocated under Oil for Food rules. Everywhere evidence lingers showing that Oil for Food receipts propped up the dictator rather than the deserving.

“Iraqis were the ones with the oil, the beneficiaries of the food and medicine,” said Claude Hankes-Drielsma, a London financial consultant and adviser to the Iraqi Governing Council. “They want to find out the truth in order to move on. It’s important to feel that those who have violated Iraq are brought to justice and appropriate action is taken. That needs to happen with urgency.”

Iraqis also see a parallel between conducting the Oil for Food probe and putting Saddam Hussein on trial. One government aide – speaking off the record because of potential threats from Saddam-linked insurgents – said, “We could shoot Saddam now, or lock him away without parole for the rest of his life, with no one objecting, and with far less expense. Or we can go through a protracted, extremely expensive trial to get to the same point.” The trial, he said, like the investigations, “is anticipated to better serve the future of Iraq, and perhaps the rest of the world, too. Iraqis have to face up to themselves, too.”

For that reason, Iraqi officials were dismayed when Mr. Bremer short-circuited their investigation, which was unanimously approved by the IGC. Mr. Hankes-Drielsma, who “implored” Mr. Annan in a meeting last December to open an Oil for Food investigation, said Iraqi leaders picked up the ball first in an “official and transparent action of appointing an accounting firm of international reputation, someone whose findings no one will question.” Their initial findings prompted Congress and the UN to open investigations of their own.

Nevertheless, Mr. Bremer froze funds to the auditing firm KPMG in March and finally shut down the Iraqi probe in May, just as Mr. Volcker’s team of investigators completed its first weeklong trip to Iraq. Insiders speculate that Mr. Bremer was influenced by a meeting with Volcker team leader Richard Murphy, a career diplomat and former ambassador to Saudi Arabia and Syria. Mr. Hankes-Drielsma, along with IGC member and finance committee chairman Ahmad Chalabi, protested Mr. Bremer’s decision publicly and appealed to members of Congress.

On May 20 U.S. troops raided the home of Mr. Chalabi, who had been a longtime U.S. ally, seeking documents and computer records to support charges his political organization was supplying U.S. intelligence to Iran. But an overlooked detail in the wire service stories about the raid read: “Documents and computer records about the Iraq Oil for Food scandal also were taken by U.S. forces and Iraqi police.” Mr. Hankes-Drielsma said his computer was hacked and its files destroyed the same day. The Iraqi leaders suspected that Mr. Bremer and other career diplomats were protecting the UN investigation effort – hence a future UN role in Iraq – at the expense of an Iraq-led probe. Or that Mr. Bremer was covering for U.S. handling of oil revenues since the war.

When the Oil for Food operation closed last November, it transferred $8 billion of the Development Fund for Iraq to CPA control. With last month’s handover, CPA transferred it to the interim Iraqi government. An upcoming report prepared by KPMG is critical of CPA management, saying recent recordkeeping “leaves the Development Fund for Iraq open to fraudulent acts.” The report states that CPA authorized six programs utilizing the fund at meetings without a quorum present. It also says CPA failed to notify properly Iraqi representatives of peer-review board meetings, as required. Left in the dark, an Iraqi delegate attended only two out of 43 meetings in 2003.

With the Development Fund now in Iraqi hands, KPMG and a team of auditors including international law firm Freshfields and Patton Boggs, a Washington, D.C., law firm, want to revive their Oil for Food investigation; they recently proposed just that to interim Prime Minister Iyad Allawi. Iraqis have not only to recover financial ground but also to restore safety. Ongoing insurgency was brought home to Iraqi investigators when an Oil for Food watchdog, the head of Iraq’s Supreme Audit Board, Ehsan Karim, died early this month from a bomb blast outside his home as he headed to work.

More and more, Iraqi leaders believe the latent spoils of Oil for Food are fueling terrorism. Feared branches of Saddam’s ruling Tikriti tribe have access to “tens of million of dollars,” according to Samir Shaker Mahmoud Sumeidi, a former IGC member. Mr. Sumeidi , a highly respected Sunni and political rival to Mr. Chalabi (who is Shiite), recently told a Washington audience that insurgents are receiving cash from smuggled oil and contracts for equipment and other goods won at least partly under the tainted UN program.

That is one more reason for UN chiefs to attempt the Herculean task of opening Oil for Food books to public scrutiny and for legitimate investigators to decapitate the nine-headed serpent with cooperation. “To be quite practical about it, if Oil for Food allowed Saddam to funnel money to murderers who may yet pose a danger to us all, it seems foolish to wait upon the ceremony of yet more UN confidentiality and self-investigation,” said Ms. Rosett.

Categories: Odious Debts

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